Wednesday, May 27, 2009

Peter Costello, Sol Trujillo, and the disaster that is Telstra

(Above: Sol Trujillo trying to fend off Peter Costello).

It's always a grand if rare sight to see a crocodile shedding tears, but it's even grander to see Peter Costello draw himself up to his full height of righteous indignation and unload on Sol Trujillo, late and unlamented head of Telstra.

Perhaps a better parallel might be Pontius Pilate washing his hands of any involvement in the matter of Christ's crucifixion, or Telstra's recent disastrous performance.

The way Costello tells the story, in The only victim here is Telstra's share price, the Coalition government was heroic in its endeavours to introduce competition into the telecommunications sector:

Before 1997, Telstra had been a public monopoly. The then Coalition government, at great political cost, decided to make it a private sector company and open it to competition.

There is no advantage in replacing a public monopoly with a private one. Competition meant withdrawing the privileges Telstra enjoyed as a government entity so other companies could compete on a fair basis. Telstra management liked the privatisation but they were very hostile to removing the monopoly privileges.

What Costello elides over is that this privatization was perhaps the greatest bungle the government managed in its decade of power, performed by the zealots who believe in the marketplace and privatization, without understanding the necessary conditions for effective competition.

In short, he who controlled the pipes would always hold the upper hand. The government at the time was warned of not having the guts to produce a structural separation between Telstra's in ground network, and its retail activities, and it ducked the bullet.

It was too hard, and that failure of nerve has bedeviled every activity undertaken by Telstra and its competitors ever since.

For Costello to start heaping all the blame on Trujillo is so rich that you could only serve it as a Christmas fruit cake. Not that anyone could reasonably expect the Coalition to have had any understanding of how the Internet has subsequently developed, but they can't now pretend they were never warned by those who could, and in any case by those who understood that leaving the pipes in Telstra's purview was a recipe for disaster.

According to Costello, blessed with hindsight but still lacking in any wisdom, it was all so simple. The problems arose because they brought in some damn Yankees to run the show:

Most famous of these was Phil Burgess, who was head of regulatory affairs.

Burgess waged unrelenting war against the regulatory regime which allowed competition to Telstra on fair and reasonable terms as determined by the Australian Competition and Consumer Commission.

He thought Telstra should not have to let competitors use its network at the kind of prices the ACCC was talking about. Telstra took every legal point that it could - eventually ending up in the High Court, where it lost.

A war that could only have been waged because of the botched privatization. And the ACCC as the umpire for a failed privatization scheme? Didn't anyone notice how tough it is for rugby league referees when thugs take the field?

And worse still, when the coalition embarked on its mission, it loaded the board with people like former National Farmers' Federation president Donald McGauchie, supposedly a mate at ease with the big end of town, who eventually ended up a hapless chairman of the board.

The setting up of the new Telstra could in fact only be compared to the appointment of Jonathan Shier to run the ABC. And the only victim isn't Telstra's share price, it's the mugs who bought into Telstra as part of John Howard and Peter Costello's picket fence view of Australians becoming a nation of shareholders (thereby paying again for what they already owned).

Of course Costello has some easy shots at the departing Sol, who's performance was truly abysmal, and who, in seeking to disguise it, has lampooned the country for being racist and backward. (Costello lets Chairman Rudd off the hook for farewelling Trujillo with an 'adios' but really if Rudd had any style he would have said hasta la vista baby).

I guess when you act like a corporate cowboy, you shouldn't be too hurt if people call you a cowboy.

The farce that was Telstra culminated in Labor having to devise some fancy footwork to step around the incumbent monster when it refused to participate in any sensible way in the broadband tender process. This allows Costello a fine flurry of scare mongering:

The upshot is that when Labor's tender failed, the Rudd Government decided to commit taxpayer funds to a fibre network with no business plan, no guarantee of commercial return, no due diligence - with no process - just to save face on the collapsed tender. It is a gamble of unprecedented proportion. Unless the Government listens to some reason about this proposal it could be one of Australia's great commercial disasters.

Actually, it sounds more like the inept launch of Telstra into the marketplace by the coalition, which has stung the proverbial mum and dad shareholders, fleecing the value of the shares of billions. If you want one of Australia's great commercial disasters, look no further than Telstra, and don't look beyond its founding fathers, Howard and Costello.

And if we never get structural separation - which is really what the new broadband plan attempts - we will go on having Telstra as the cuckoo in the nest for an eternity.

But who does Costello think is to blame?

The Telstra directors could not have been surprised things ended the way they did under Trujillo. His previous track record was there for all to see. In my view, the board has a lot of explaining to do. It's about judgment and performance. It is not about race.

Well yes, it's not about race. It's about judgment and performance. And for ducking the hard, obvious question way back when, Costello and the coalition have a lot of explaining to do.

So enough with the pious crocodile tears. Telstra shareholders have been shedding them in abundance thanks to the disaster the coalition launched into the marketplace ...


Anonymous said...

Costello can't be let off the hook for attempting such a shocking rewrite of history on this matter. After hocking off Telstra as a supposed sound investment to the Mum & Dad investors of Australia, his own party then sabotaged any hope of achieving a quality return on that investment by wrongfully installing an unqualified, inexperienced hay seed like McGauchie to the board purely because he was willing to perform the necessary dirty work for them during the whole Australian Dockside Scandal. The end result of this shameless 'you scratch my back and I'll scratch yours' exercise was the infliction upon the hapless shareholders of a hopelessly inept, out of touch CEO by an even more hopelessly inept chairman. People have rightly been prosecuted and served jail time for falsely promoting the supposed merits of dodgy investment schemes only to cut the legs out from underneath the same schemes for deliberate self gain. The only thing I can't figure out in this case is what Costello hoped to gain? Engage in any short selling of Telstra shares did you Pete? I'm sure we'll never know. One thing you can be sure of though is that the Mum & Dad investors of Australia aren't as dull or as lacking in intellect as Costello likes to think. They'll remember the core role of Costello and his government in this whole sorry debacle and no attempt to audaciously distance himself or rewrite history in a pathetic attempt to claim the moral high ground on this issue will save him from that memory. I only hope that someone in the media has the moral fortitude to hold the blow torch to Costello over his outrageous and hypocritical claims. I sure hope Kerry O'brien reads your blog and takes note!

dorothy parker said...

The point about the Telstra float was to maximise the benefit to government (ostensibly by for and of the people) to make life easy in budgetary terms for slack politicians, while setting up the float in such a way as the consumers and the shareholders would take the fall. You'd call that a triple flop in a high diving competition. He's such a sanctimonious smarmy humbug is our Pete.